JD.Com Inc(ADR) (NASDAQ:JD) stock is falling sharply on an earnings headline. This is an opportunity that I would like to grab. My goal is to start a cautious long position in JD.com stock. This is a long-term commitment so the short-term volatility is worrisome but not prohibitive.

Investing is a scary proposition when stock markets are moving so violently. And when the company misses expectations, the stock is punished harder than usual. This is the case here in JD. Management came up short and investors are lashing out.

My thesis here is simple. I am betting that JD.com stock will succeed in the long-term, so I trade the technical levels at hand.

The current dip brings JD stock back to a pivot point from which it mounted its last rally.

Under normal circumstances, I would say that this is a strong floor.

But while the CBOE Volatility Index (INDEXCBOE:VIX) is ramping and markets are falling, I cannot count on that to happen.

So I need to look for stronger support levels to gauge my risk. Back in May of 2017, JD made a marked move higher from another neckline and that would be the better support that I would count on.

Fundamentally, while I don’t have the usual value metrics, I am comforted that it has excellent growth and operating metrics in its sector. So even if its price-to-book is high, I consider this a growth company; therefore, I worry more about that than value for now. JD missing its sales target is concerning, but this is only one report and they have time to fix it.

We are living in a world that is migrating us to the online transactions. So companies like JD are in the right spot and at the right time. With global giant partners like Walmart Inc (NYSE:WMT), JD.com stock is not likely to fade into nothingness.

Wall Street is uniformly bullish on JD stock, which elevates the risk of a surprise downgrade, but their expectations are too lofty as yet.

Besides, JD.com stock is now trading close to the low end of its price range. I am not brave enough to risk buying the stock at face value and without any room for error. Instead, I will use JD options, where I can build a buffer between current price and my risk level.

Two Trade Ideas for JD.com Stock
The Trade: Sell the JD Sep $30 naked put. This is a bullish trade, where I collect 70 cents to open. Here, I have an 85% theoretical chance of success. But if the price falls below my strike, then I accrue losses below $29.30.

Selling naked puts carries big risk, especially for a stock as frothy as JD.com. For those who want to mitigate it, they can sell a spread instead.

The Alternate Trade: Sell the JD Sep $30/$28 credit put spread, where there is about the same odds of winning but with much smaller risk. However, the spread would yield 15% if successful.

Today’s trade doesn’t need a rally to profit, although it would certainly benefit from one. I simply need JD.com stock to hold its support for the next few months. It is important to know that if it does, then I want to own the shares at a discount from here.

Ultimately, investing in stocks is fraught with danger, so I never risk more than I am willing to lose.

— Nicolas Chahine

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Source: Investor Place